Health worries cause chaos in stocks, dollar dumps, gold jumps

It was been a brutal day for stocks as the likes of the DAX, FTSE 100 and the CAC 40 are all showing losses in excess of 2.5%.

Europe

The week has been awful for equities as traders are petrified of a pandemic, but today’s session has been the most painful. The fear factor is ramping up and in turn, we are seeing traders drop stocks at an increasing pace. Dealers are rushing for the exit as the chatter about the global economy being hurt because of the coronavirus has risen.

Drax is one of the few gainers on the session as the company confirmed plans to close it coal plants by 2022. The group will focus on biomass energy. The news ties in with the government plans to halt coaling-burning for energy plants by 2025. Energy firms are pushing away from coal as the world is becoming greener. Drax also posted solid numbers today as adjusted earnings jumped by 64% to £410 million, meeting forecasts.

Reckitt Benckiser shares initially trader higher today despite the colossal £5 billion wrote-down in relation to its takeover of Mead Johnson, the baby formula manufacturer. The group issued a profit warning in October so that took some of the sting out of today’s update. Revenue for the year ticked up 0.8% and the sales outlook for the year is optimistic. On account of the health crisis, the firm has seen a surge in demand for hygiene products like Dettol. The stocks is in the red.

AB InBev warned that first-quarter profit could be hurt by up to 10% on account of the coronavirus crisis. The group relies heavily on China for sales so it is worried about the health situation in the country. The update echoes the warning yesterday from Diageo.

WPP had a soft finish to the end of last year, and the outlook for the year ahead has been revised lower, hence why the stock is sharply down. The advertising giant has struggled to keep up with changing trends in the industry as the likes of Google have grabbed some of their business. Today the firm announced a 1.9% dip in like-for-like in net sales for the last three months of the year. The group now anticipates zero growth in LFL net sales for next year. The major decline in the stock price seems excessive considering the middle-of-the forecast.

US

The negative sentiment continues to hang around Wall Street. The Dow Jones entered corrected territory – a 10% drop from its recent high, and keep in mind it wasn’t that long ago the all-time high was set. The sharp move lower recently underlines how quickly sentiment can change – traders have a herd mentality. The second-estimate of US fourth-quarter growth was 2.1%, meeting forecasts. Durable good showed a 0.2% fall in January, which was a big turnaround from the 2.9% growth that was posted in December, but keep in mind the traders were expecting a 1.5% fall. Pending home sales surged by 5.5% last month, and that tallied up with the robust new home sales from yesterday.

Tesla shares are down in excess of 8% as new registrations from China tumble. The country in question is a big market for the electric vehicles, so when a report showed the number of registrations in January dropped by 46%, it hit sentiment hard. In light of the nation’s health crisis, the outlook in the near-terms isn’t great either.

FX

The US dollar index has sold-off sharply as there is chatter about the Federal Reserve cutting rates. The economic reports from today were robust, but traders are far more concerned about the outlook for the US economy. There is speculation about the growth rate being impacted because of the coronavirus. Some traders are wondering when will President Trump start demanding lower rates from the Fed, and he does have form when it comes to getting his way. The major move in the greenback has driven up EUR/USD. GBP/USD is a little lower despite the major fall in the US dollar. Sterling’s weakness comes from the news the UK negotiating team might walk away from talks in June, so dealers are dumping the pound on fears of a no-deal scenario post the transition period.

Commodities

Gold has jumped on the back of the risk-off strategy of traders, as well as the weakness in the US dollar. The big falls in global equity markets has promoted traders to pour their funds into assets that are deemed to be lower risk, such as gold. On top of that, the metal’s inverse relationship with the greenback is helping it too as the softer dollar makes the metal relatively cheaper to buy.

WTI as well as Brent crude have taken another beating on global growth fears. The chatter in the markets about interest rate cuts come from a very bearish place, so traders are taking the view that demand for oil will be severely hit. The energy market can be viewed as a proxy for the perceptions about the global economy, and seeing as dealers are worried about the health crisis dampening growth prospects, it’s no wonder the oil market is feeling the pain.

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